Aid for Trade: Making an impact

Remarks by Angel Gurría, OECD Secretary-General

Paris, 3 November 2008

Introduction

Distinguished guests, ladies and gentlemen, it is my great honour to welcome you to the OECD Policy Dialogue on Aid for Trade, which received generous support from the European Commission and the German Marshall Fund.

We met, almost a year ago, in the WTO to review the Aid for Trade Initiative. The 1st Global Review was a success, and it could not be otherwise as all stakeholders participated actively. The OECD reported that donors and partners were gradually prioritising trade in their development strategies, and that flows linked to this agenda were increasing. On that basis, the outlook for additional funds was promising.

As a matter of fact, global aid for trade flows grew by 10% in real terms in 2006. Moreover, the increase was additional; meaning not to the detriment of aid to the social sectors. Most of the increase was destined for Sub-Saharan Africa; a region confronted with substantial needs, but also with an enormous potential for economic take-off. Regional programmes, which are effective vehicles for addressing cross-border bottlenecks, also experienced a significant boost in funding and now represent 18% of total aid for trade flows. New data will be available shortly and for 2007 we expect to see a continuation of these trends.

Mr Gurría addressing the OECD Policy Dialogue on
Aid for Trade.

However, the 2009 outlook is much less positive. The world economy is confronting one of its worst economic periods. The financial crisis and its impact in the real economy, highly volatile commodity prices, and the failure to conclude the Doha Development Agenda have all worsened the economic outlook. No doubt, the prospect for aid for trade could also be affected if we do not strenghten our development efforts.

I will address the context in which this Policy Dialogue takes place, and emphazise the need to avoid a weakening of our commitments with aid for trade that are associated with the economic downturn. Then, I will argue why we need more and better aid for trade, and some proposals to move forward.

What prospects for aid for trade?

The financial crisis and economic downturn

In the short to medium term, the financial crisis and the likely economic downturn could well jeopardize the contribution of trade to poor countries growth and poverty reduction objectives. Furthermore, an economic slowdown in the OECD area will reduce demand for the commodities on which much of recent growth in low-income countries was based. Falling export receipts will make it more difficult to finance developing country spending plans, while the dependency of some of their governments on tariff revenues render their budgets vulnerable to potential reductions in trade flows.

This makes aid for trade all the more important, not less. Especially at a time of slack demand combined with increased competition, aid for trade is critical to improve the supply side response. Thus, donors need to honor their aid for trade pledges, particularly to the poorest developing countries, who might well be confronted by cuts in other sources of development finance. Last week, the DAC Chair and I wrote to Head of States to join an “aid pledge” under which they would refrain from budgetary cuts that would be inconsistent with existing aid commitments. We also made the same point at the Development Committee meetings in Washington, last October.

The spike in world food prices

The financial crisis and its implications for the real economy will worsen the situation that developing countries already faced due to high energy food prices. Fortunately, the prices of foodstuffs have come down sharply from the spikes of only a couple of months ago, but it remains very difficult to predict where they might be in the next 3-6 months.

Nevertheless, the longer term outlook for food prices over the next decade is much above average levels for the last decade.

In the longer term, high food prices will have serious implications for the hunger and nutrition levels of the poorest and impact their ability to move onto sustainable paths out of poverty. In such a setting, aid for trade is important to help farmers respond to the incentives that these prices should represent for the investments in agriculture.

The failure to conclude the DDA

This brings me to the third issue confronting aid for trade: the failure to conclude the Doha Development Agenda.

Achievement of further -- mutually beneficial -- trade reform remains a critical development objective, and we must conclude Doha.

Over the years, considerable progress has been made. With the tireless and able leadership of the WTO’s Director General Pascal Lamy, countries were in reach of a result that, if agreed, would have made the Doha Round one of the most far reaching rounds ever. We should build on these achievements to get the agenda moving again. This will send a very positive signal in the current circumstances.

Why more and better aid for trade is needed

The developing world is now confronted with a situation in which the credit crunch and the looming recession in major OECD markets might choke aid, trade and investment flows. This, in turn, will put pressure on their budgets, making it harder to finance their MDG strategies. These risks are looming while much needed resources to finance in-depth investments to generate economic growth are diverted to pay for higher food prices.

Such an environment makes more and better aid for trade essential to strengthen supply side responses. This can be achieved through improving their competitiveness, diversifying their productive capacity and reducing trade costs. However, the darkened economic outlook also poses significant challenges for building on the initial successes of the Aid for Trade Initiative.

What to do?

The agenda for this 2nd OECD Policy Dialogue clearly sets out some of the key challenges that need to be confronted to ensure that this objective continues to receive the priority attention it deserves.
These challenges are:

1. How do we get the arguments right?
2. How do we get the delivery right? and
3. How do we get the right feedback?

Getting the arguments right!

The positive impact that trade openness has on economic performance and growth should be underlined now more than ever. There is enough evidence at hand to prove it, but there are still many unconvinced. What is more, due to the financial crisis, there is an increasing risk of growing protectionism and questions about the value of open markets. We should counter these arguments. The positive experience of many countries should be made more visible.

In this sense I would like to quote here the Ghanaian Minister for Finance and Economic Planning, Mr. Anthony Akoto Osie, who joined me in a BBC World Debate and persuasively argued that trade matters, and that aid for trade can help countries overcome barriers that constrain their ability to fully benefit from trade.

Getting the delivery right!

Getting the arguments right is only the first step. With almost unlimited needs, and limited financial resources, it is essential to get the delivery of aid for trade right as well.

The Paris Declaration on Aid Effectiveness is the guiding principle of Aid for Trade and I would like to salute the wisdom of the co-chairs of the WTO Task Force on Aid for Trade, Mia Horn af Rantzien and Valentine Rugwabiza, who are both present, for emphasizing the validity of these principles in their recommendations.

This agenda received a clear impulse during the very successful 3rd High Level Forum on Aid Effectiveness, the Accra Forum, where we assessed progress with the implementation of the Paris Declaration. The OECD presented evidence showing that development strategies have improved; that developing countries are progressively exercising leadership; that civil society and the private sector are more involved; and that donors are providing increased levels of support.

In a nutshell, developing countries are taking the lead in determining their own future. As noted in the joint OECD/WTO publication Aid for Trade at a Glance, this progress has also been achieved in the delivery of aid for trade. But more remains to be done.

During the discussions about this topic today, it will be instructive to exchange views on how to engage those involved in South-South cooperation to use the Paris Declaration as a point of reference for providing assistance; or how to broaden ownership of Aid for Trade beyond the trade ministry, and how to rebalance our tendency to focus on overambitious plans to the detriment of actual projects and programmes.

Getting the right feedback

The Accra Action Agenda also stresses the need to improve mutual accountability and to develop incentives for effectively monitoring and evaluating development results. These will be the topics of tomorrow’s discussions.

As growing aid resources, time and energy are being devoted to building trade capacities, we need more evidence demonstrating the effectiveness of these activities, to learn more about what does and does not work, and why.

Evaluating aid for trade, however, is far from simple. A clear methodology should be developed that takes into account the complexity of the issue and disentangle the multiple causes of certain achievements. Specific indicators to track progress in the implementation and impact of Aid for Trade should be developed.

Evaluative frameworks focussed on data and performance information should be an integral part of managing aid for trade activities. Getting the right information is, thus, essential.

This is the topic of the 4th session of the dialogue and Pascal Lamy has suggested that our partners should be given an additional opportunity to discuss the outcomes of the recent WTO Symposium on Identifying Indicators for Monitoring Aid for Trade.

I welcome his suggestion for it illustrates the close coordination between our two organisations in this area, but also in others. Through different working methods, but in a coordinated and coherent way we both strive to make globalisation an inclusive process to the benefit of all.

Ladies and gentlemen,
Globalisation has created enormous global wealth and human progress, but also a much more complex reality, which is constantly transformed by a myriad of global challenges, emerging actors and contrasting perspectives. Making the most of this process is proving to be a highly difficult task as is illustrated by the financial crisis.

The OECD has been adapting to the new circumstances and is working hard to produce a more inclusive globalisation. Aid for trade provides an effective tool to make this happen and we will continue contributing to strengthen its impact.

Ladies and gentlemen, the times might be uncertain; but our commitment is not!